Modified duration gap of 3 year and market value of assets of 3 million. Manager expects interest
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Question:
Modified duration gap of 3 year and market value of assets of 3 million. Manager expects interest rates to go up from 9% to 10%.
Question:
Show how can the manager immunize the bank assets from interest rate change by using following 2 Swaps:
Swap 1: pay T-bill +1% in exchange for 7% fixed rate.
Swap 2: pay fixed rate of 7% in exchange for a floating rate of T-bill +1%.
Assume modified duration on 7% fixed rate security is 7.5 and the modified duration on T-bill is 1.
Related Book For
Personal Finance Turning Money into Wealth
ISBN: 978-0133856439
7th edition
Authors: Arthur J. Keown
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